The marginalists who confronted land

American Journal of Economics and Sociology, The,  Jan, 2008  by Fred E. Foldvary

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However ambiguous and contradictory Pareto was regarding land rent, the textual evidence does show some recognition by Pareto of the distinctive character of land as an economic factor.

VI

Alfred Marshall (1842-1924)

ROBERT HEBERT (2003) presents four propositions of Henry George regarding land that Alfred Marshall argued against. First, that progress causes poverty. Marshall was right in arguing that absolute poverty had decreased, but George meant poverty in a relative sense. Second, that high rents cause low wages. What George meant was that the movement of the margin of production to less productive land raises rent and lowers wages. The concept of the margin of production is ignored in neoclassical economics. Third, that land rent is a monopoly price. Land is not an absolute monopoly of one owner; what George meant was the entry monopoly, an inability to expand the supply. Fourth, that land-value taxes stimulate production. This is so because land is used more productively, and also for replacing deadweight-loss taxes.

Marshall wrote an article "On Rent" in 1893. Regarding the "special" status of land, Marshall (1893) wrote:

   The rent of land appears to differ in degree rather than in kind
   from the net income yielded by other agents of production, the
   supply of which may be taken as fixed for the time under
   discussion, whether that be long or short.

But Marshall recognizes what modern economics texts forget, that the

   Producer's Surplus is a convenient name for the genus of which the
   rent of land is the leading species. Producer's Surplus is the
   excess of the gross receipts which a producer gets for any of his
   commodities over their prime cost; that is, over that extra cost
   which he incurs in order to produce those particular things, and
   which he could have escaped if he had not produced them.

Regarding the taxation of the rent, Marshall says:

   Land in a new country, but only there, resembles a manufacturing
   plant from this point of view. The settler engages in a risky
   occupation open to all; and one of the chief motives to his
   exertion is the hope of becoming the possessor of title deeds to
   land that will rapidly rise in value. A tax on any part of his
   gains, present or in the near future, would instantly discourage
   the enterprise of himself and others, and make itself felt strongly
   in the supply and therefore in the price of agricultural produce.
   Accordingly, the whole of his income is to be regarded as earnings
   and profits, or at most as a quasi-rent and not as rent proper:
   although even in a new country a far-seeing statesman will feel a
   greater responsibility to future generations when legislating as to
   land than as to other forms of wealth; and even there land must be
   regarded as a thing by itself from the economic as well as from the
   ethical point of view.

Marshall thus uses a different definition of land than that of the classical economists, particularly Henry George. If a tax discourages enterprise, then the tax is on enterprise and the products of enterprise, not on land as such. The Georgist land tax should exclude improvements, which include the increases in the site value due to improvements of the owner.